In March, the FCA published its Business Plan, this year also including its Risk Outlook. Whilst the Business Plan contains a great deal of information, we have picked out some of the details most likely to be of interest to enforcement watchers.
- The FCA has set out the 7 top forward areas of risk focus as it sees them.
- Certain areas continue from last year. Included in that list is culture. The FCA describes the risk as "Poor culture and controls continue to threaten market integrity, including conflicts of interest". We have seen how culture has been a constant from the FCA in the last year. The FCA is keen to ensure this momentum is not lost.
- Significantly, financial crime now appears in the top 7. The FCA describes this as "The importance of firms' systems and controls in preventing financial crime". It warns that firms that fail to place adequate emphasis on implementing necessary systems and controls are more vulnerable to being used to further financial crime. During 2015/16, the FCA says it will continue to focus on both anti-money laundering (including terrorist financing and sanctions) and anti-bribery and corruption measures, as these are the areas in which it considers it can deliver the most value. It proposes to maintain its focus on fraud that affects consumers, although to a lesser extent as it considers that firms appear to have stronger mechanisms to identify consumer fraud. Elsewhere in the Business Plan, the FCA states that firms should avoid broad decisions to de-risk their books of entire categories of customers in ways that may be anti-competitive or impede legitimate consumers' access to financial services. That is, risk judgements are required rather than broad risk avoidance.
- As for its 5 key priority areas, Individual Accountability is one that is particularly worthy of note in the current environment. There has been a great deal of emphasis on this in the past year, and it is clear that this is to continue. This is a feature of the culture agenda and unsurprisingly includes discussion also of the new senior managers and certified persons regimes. The FCA specifically highlights that it will continue to focus its efforts on individual accountability in its enforcement work.
- We have in the past often seen thematic reviews as a prelude to enforcement action. The FCA lists out its current and planned market studies and thematic work. Those that we particularly pick out from the long list are: Culture Review; Risks at Client Take-On in Contract for Difference Providers; the Role of Appointed Representatives; Inducements and Conflicts of Interest; Controls over Flows of Information in Investment Banks; Conflicts of Interest in Dark Pools; and Wealth Management Review (suitability of client portfolios). We shall have to see which of these may give rise to enforcement action in the years to come.
- Finally, in discussing enforcement generally in 2015/2016, the FCA unsurprisingly refers to its continuing strategy of credible deterrence.
- In addition, it refers specifically to its perimeter work, that is, its activity against those who are conducting regulated activities without appropriate authorisation.
- As far as wholesale markets are concerned, it is interesting to see that one of the aspects the FCA refers to is taking action where firms fail to manage risk effectively.
- Enforcement watchers will also be looking closely at how the FCA plans to respond to the Treasury's 39 recommendations across the FCA and PRA enforcement decision making process. Not giving very much away, the FCA says it will be considering how best to implement the FCA related recommendations.
You can read the FCA's 2015/2016 business plan here.
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